931 F.

2d 738
60 USLW 2014, Bankr. L. Rep. P 74,008

In re Michael Carmine GALLUCCI, Debtor.

Angelina GALLUCCI, Plaintiff-Appellant,
v.
Charles E. GRANT, as Trustee, Defendant-Appellee.
No. 89-3332.

United States Court of Appeals,

Eleventh Circuit.
May 16, 1991.

Matthew J. McGowan, Salter, McGowan, Swartz & Holden, Providence,

R.I., for plaintiff-appellant.
Chester J. Trow, S. Sue Robbins, Matthies, Cross, deBoisblanc, Haldin &
Robbins, P.A., Ocala, Fla., for defendant-appellee.
Appeal from the United States District Court for the Middle District of
Florida.
Before TJOFLAT, Chief Judge, TUTTLE, and RONEY * , Senior Circuit
Judges.
TJOFLAT, Chief Judge:

I.

This case involves a turnover proceeding brought in the Bankruptcy Court for
the Middle District of Florida. The trustee in the bankruptcy sought an order
requiring Angelina Gallucci (Mrs. Gallucci) to vacate her home in Warwick,
Rhode Island and to turn over the possession thereof to him. During the
proceeding, Mrs. Gallucci failed to appear for a deposition, and the bankruptcy
court, on the trustee's motion, entered an order striking her defensive pleadings
as a sanction for her failure to discover. She appealed to the district court, and
that court affirmed.

Mrs. Gallucci's son, Michael Gallucci, Jr., became insolvent in 1981,1 and a
trustee, Charles Grant, was appointed to administer the bankruptcy estate.2 In
1984, Grant instituted an adversary proceeding against Mrs. Gallucci, among
others,3 claiming that her home was property of the estate and must be turned
over to the trustee pursuant to 11 U.S.C. Sec. 542 (1988).4 Mrs. Gallucci
subsequently filed an action in the Superior Court of Rhode Island to quiet title
to the property. Grant removed that action to the United States Bankruptcy
Court for the District of Rhode Island; that court transferred it to the
Bankruptcy Court for the Middle District of Florida, which consolidated the
quiet title and turnover proceedings for trial pursuant to Fed.R.Civ.P. 42(a).

Mrs. Gallucci, an elderly, bedridden widow, relied on her attorneys to defend

against the turnover of her home. On December 2, 1986, Chester Trow, counsel
for the trustee, served a notice of deposition, and a request for production of
documents on Mrs. Gallucci's counsel in Florida, William Day. Trow later
contacted Day to schedule the deposition, and Day told him that he was
uncertain if Trow would be allowed to depose Mrs. Gallucci because she was
just beginning to recover from major exploratory surgery. Day, however, did
not seek a protective order.

Believing that the deposition would proceed, Trow traveled to Rhode Island,
but Mrs. Gallucci did not appear at the appointed place and time.5 Trow
returned to the bankruptcy court, asking it to sanction Mrs. Gallucci for the
discovery violation, and the court obliged, charging her with the expenses and
attorney's fees that Grant had incurred ($3,193.30). See Bankr.R. 7037
(incorporating by reference Fed.R.Civ.P. 37).6 Mrs. Gallucci did not pay the
sanction within the time allowed by the court,7 and, after four extensions, the
court struck her pleadings, entering a default against her and barring her from
participation at trial8 in the turnover proceeding (Nos. 87-250-Civ-Oc-12, 8848-Civ-Oc-12), and dismissing with prejudice her quiet title action (No. 87-251Civ-Oc-16). Mrs. Gallucci appealed. The district court affirmed the sanctions
order and final judgment in the turnover action--the subject of the instant
appeal; when the quiet title action came before the district court (the appeals
had proceeded separately), the court stayed it pending the resolution of this
appeal.

In his turnover complaint, the trustee alleged that the Rhode Island property
was part of the bankruptcy estate as of the commencement of the case or,
alternatively, that the property later was conveyed to the estate as a gift. Grant
conceded at trial, however, that the debtor did not hold an interest in the
property at the commencement of bankruptcy;9 he relied entirely on his

alternative claim that the estate obtained title to the property by gift in the
following series of transactions. Until 1970, Mrs. Gallucci and her husband,
Michael Gallucci, Sr., owned the property jointly. On October 2, 1970, Michael
Gallucci, Sr., transferred his interest in the property to the couple's daughter-inlaw, Patricia Gallucci--the debtor's wife. On November 3, 1972, Mrs. Gallucci
also transferred her interest in the property to Patricia Gallucci, leaving Patricia
with a fee simple interest in it. In June 1980, Patricia purported to convey the
property to Robert Gaudio, a family friend residing in Florida.10 Gaudio, in
turn, quitclaimed the property to the trustee in January 1984.11
6

At trial, the bankruptcy court considered the possibility that Mrs. Gallucci's
entitlement to the property was superior to the trustee's. First, it noted that in a
deed, dated January 12, 1983, Gaudio purportedly conveyed his interest in the
property to Decorative Statues, Inc. (a corporation in which Patricia Gallucci
had a majority stake); another deed, dated February 25, 1983, conveyed the
property from Decorative Statues to Mrs. Gallucci. If these two deeds, both
executed prior to the deed from Gaudio to the trustee, were valid, then Mrs.
Gallucci would be the record owner of the property. The bankruptcy court
found, however, that the deed from Gaudio to Decorative Statues was forged
and, consequently, that even though the appellant held a deed conveying the
property from Decorative Statues to her, she could not claim under it. Thus, it
entered a final judgment ordering Mrs. Gallucci to turn over the property to the
bankruptcy estate.

On appeal to us, appellant contends that the bankruptcy court (1) did not have
jurisdiction to decide the turnover action against Mrs. Gallucci since that action
involved property that concededly never had belonged to the debtor; and (2)
abused its discretion by (a) sanctioning Mrs. Gallucci rather than her attorney
for discovery abuse; (b) striking Mrs. Gallucci's pleadings although she did not
willfully disobey the court's sanctions order; and (c) refusing to remove the
trustee's counsel from the case due to his conflicts of interest.12 Thus, Mrs.
Gallucci contends, the district court erred in affirming the bankruptcy court's
orders and final judgment.

We conclude that the bankruptcy court lacked jurisdiction to order a turnover of

this property and that, consequently, the case must be dismissed; accordingly,
we do not discuss Mrs. Gallucci's other challenges.

II.
9

Although bankruptcy courts by statute may hear "any or all cases under title 11
and any or all core proceedings arising under title 11 or arising in or related to a

case under title 11," 28 U.S.C. Sec. 157(a) (1988), they may not entertain cases
involving noncore, unrelated matters, see, e.g., Pacor Inc. v. Higgins, 743 F.2d
984, 994 (3d Cir.1984) ("[J]urisdiction over nonbankruptcy controversies with
third parties who are otherwise strangers to the civil proceeding and to the
parent bankruptcy does not exist.") (quoting In re Haug, 19 B.R. 223, 224-25
(Bankr.D.Ore.1982)); In re Holland Indus., 103 B.R. 461, 465
(Bankr.S.D.N.Y.1989) ("Bankruptcy courts have no jurisdiction to entertain
civil proceedings that are neither core proceedings nor related proceedings.").
The instant case involves property that never belonged to the debtor but that a
third party, Gaudio, quitclaimed to the trustee to "compromise" the trustee's
concededly baseless claim against him.13 We now consider whether the
bankruptcy court had jurisdiction to entertain a turnover action involving this
property, i.e., was this action a core or related proceeding to Michael Gallucci,
Jr.'s bankruptcy.14
10

Applications for turnover orders ordinarily are core proceedings within the
jurisdiction of the bankruptcy courts. See 28 U.S.C. Sec. 157(b)(2)(E) (1988)
(core proceedings include "orders to turn over property of the estate").
Whenever a trustee brings a turnover action, he must establish, however, as part
of his invocation of the bankruptcy court's summary jurisdiction, that the
property he seeks to recover in the turnover action is "property of the
bankruptcy estate" (property that will be available for distribution by the
trustee). See 11 U.S.C. Sec. 541 (1988) (defining property of the estate). If the
action does not involve property of the estate, then not only is it a noncore
proceeding, it is an unrelated matter completely beyond the bankruptcy court's
subject-matter jurisdiction.15 This can be gleaned from a general principle of
bankruptcy law: if the resolution of litigation cannot affect the administration
of the estate, the bankruptcy court does not have jurisdiction to decide it. For
example, in In re Denalco Corp., 57 B.R. 392 (N.D.Ill.1986), two secured
creditors asked the bankruptcy court to determine which of them had the
superior interest in a piece of the debtor's equipment; the bankruptcy trustee
disclaimed any interest in the equipment since the creditors' claims exceeded its
value. On these facts, the district court held that the action was a noncore,
unrelated matter; the resolution of the creditors' competing claims could not
affect either the assets or the liabilities of the debtor's estate. Id. at 395; see also
Pacor Inc., 743 F.2d at 995; In re Dickenson Lines, 47 B.R. 653, 656
(Bankr.D.Minn.1985) ("The usual test for determining whether a civil
proceeding is related to a bankruptcy proceeding is whether the outcome of that
proceeding could conceivably have any effect on the estate being administered
in bankruptcy."); In re McKinney, 45 B.R. 790, 791-92 (Bankr.W.D.Ky.1985)
("it is only upon 'property of the estate' that this Court has ever been permitted
to have any direct judicial impact").

11

12

In the instant case, the trustee contends that the Rhode Island property became
property of the estate as a result of Gaudio's quitclaim deed to him. Grant notes
that property of the estate includes, in addition to "all legal and equitable
interests of the debtor in property as of the commencement of the case," 11
U.S.C. Sec. 541(a)(1), "[a]ny interest in property that the estate acquires after
the commencement of the case," id. Sec. 541(a)(7) (emphasis added). Thus,
according to the trustee, the property became "property of the estate" through
Gaudio's gift, and the bankruptcy court, in the subsequent turnover action,
simply could assert jurisdiction on the basis of the title documents, regardless
of the debtor's interest in the property or the relation of the property to the
bankruptcy estate. In other words, the trustee established jurisdiction by
compromise, insulating from inquiry the nature of the property and its
connection with the bankruptcy estate prior to settlement.16
Although the after-acquired property provision, section 541(a)(7), could be
read broadly to include any interest that the estate acquires after the
commencement of the bankruptcy, regardless of the debtor's interest in it, we
do not think that this was Congress' intent. We agree with the trustee that
section 541(a)(7) allows him to contract on behalf of the estate or to recover
beneficial rights and interests that the debtor may have in property of another;
according to the legislative history of this provision,

13
[section
541(a)(7) ] clarifies that any interest in property that the estate acquires after
the commencement of the case is property of the estate; for example, if the estate
enters into a contract, after the commencement of the case, such a contract would be
property of the estate. The addition of this provision by the House amendment
merely clarifies that section 541(a) is an all-embracing definition which includes
charges on property, such as liens held by the debtor on property of a third party, or
beneficial rights and interests that the debtor may have in property of another.
However, only the debtor's interest in such property becomes property of the estate.
If the debtor holds bare legal title or holds property in trust for another, only those
rights which the debtor would have otherwise had emanating from such interest pass
to the estate under section 541.
14

124 Cong.Rec. 32,399 (1978) (House); id. at 33,999 (Senate); see also 4 Collier
on Bankruptcy p 541.20 (15th ed. 1991). We do not believe, however, that
Congress intended section 541(a)(7) to extend to gifts of property having no
connection to the debtor and not contracted for by the estate--in effect,
conveyances coerced by the trustee.

15

In the instant case, the trustee concedes that the debtor never had an interest in
the Rhode Island property;17 rather, the trustee sought turnover based upon the

deed he obtained from Gaudio. 18 The bankruptcy court relied entirely upon the
"compromise" the trustee convinced Gaudio to enter to determine whether the
property the trustee sought was property of the estate. We believe, however,
that the bankruptcy court should have inquired, sua sponte, into the
compromise and determined if it, in fact, resulted in the acquisition of property
of the estate. Cf. In re Denalco Corp., 57 B.R. at 395 (the court "is obligated to
raise the jurisdictional issue sua sponte where it appears with certainty the
parties should have known their dispute would have no impact on the
administration of ... bankruptcy"). In other words, the court must examine a
compromise in which property is transferred to the estate (and thus is alleged to
be property of the estate) and determine if the compromise merely effected a
return of the debtor's property19 or, rather, was a gift of property unrelated to the
debtor and the bankruptcy estate. If the court finds the latter, the turnover
action is a noncore, unrelated matter that the court must dismiss for want of
jurisdiction. This was the case here.20
III.
16

Since the bankruptcy court lacked jurisdiction to decide this case, we

VACATE the district court's judgment and direct the district court to vacate the
bankruptcy court's sanctions order and to dismiss this action for want of
subject-matter jurisdiction in the bankruptcy court.

17

IT IS SO ORDERED.

See Rule 34-2(b), Rules of the U.S. Court of Appeals for the Eleventh Circuit

The bankruptcy commenced under chapter 11 on December 11, 1981, and

converted to chapter 7 in 1984

The Bankruptcy Court for the Middle District of Florida presided over the case

The complaint for turnover named Michael Gallucci, Jr., Patricia Gallucci, and
Decorative Statues, Inc., in addition to Mrs. Gallucci

Grant sought, in effect, to quiet title to the property--not merely to obtain

possession of it. For a discussion of the propriety of using a turnover
proceeding to quiet title, see infra note 13

Later, Day reported to the bankruptcy court that Mrs. Gallucci had been too
sick to be deposed

The bankruptcy court did not consider whether the sanctions should be imposed
on Mrs. Gallucci or her counsel (or both), after weighing the culpability of each
in the abuse. Rather, it imposed the full cost on Mrs. Gallucci

Mrs. Gallucci contends that she did not willfully disobey the court's order--she
did not have the means to pay the sanction

The matter still proceeded to trial since the trustee sought the turnover order
against Michael Gallucci, Jr., Patricia Gallucci, and Decorative Statues, Inc., in
addition to Mrs. Gallucci. See supra note 2

The debtor only appeared in the chain of title on the two occasions he
purportedly released his curtesy rights in the property. Since curtesy rights were
abolished in Rhode Island in 1979, see R.I.Gen.Laws Sec. 33-25-1 (1984), his
releases were meaningless. Although he may have had a curtesy right in the
property prior to the statutory abolition of curtesy, the trustee makes no claim-nor, in our opinion, could he--on the basis of that interest

10

Gaudio testified that he had no knowledge that a deed had been executed
conveying the property to him until the trustee approached him in 1984 and
requested that he quitclaim the property to the estate. Mrs. Gallucci now
contends that there was no delivery to Gaudio and thus he cannot claim the
property under that deed. Given our disposition of this case, it is unnecessary
for us to address this point

11

Although the deed from Gaudio to Grant recites consideration of "ten dollars
and other good and valuable consideration," Grant claims that he used no estate
funds to purchase Gaudio's interest in the property. Apparently, Grant
approached Gaudio and told him that property, in which Gaudio might have an
interest, actually belonged to the debtor and that he must quitclaim his interest
in the property to avoid litigation. Gaudio, denying that he had an interest in the
property, see supra note 9, quickly capitulated, deeding the property to Grant

12

Mrs. Gallucci claimed that Trow, after his appointment as counsel to the
chapter 11 trustee, continued to represent creditors of the estate contrary to 11
U.S.C. Sec. 327(a) (1988). She moved the bankruptcy court to disqualify Trow,
but that court denied her motion, holding that she did not have standing to raise
this claim. Since we hold that the trustee's action must be dismissed for lack of
jurisdiction, see infra, the district court must direct the bankruptcy court to
vacate this order

13

The trustee claims that

[he] became suspicious of a possible concealment of assets by the debtor in

Rhode Island under the name of Robert Gaudio. As a result of that suspicion,
[he] contacted Mr. Gaudio in Ocala, Florida, concerning the property. Mr.
Gaudio disclaimed all knowledge of the property and on request by the Trustee
... executed and delivered to the Trustee the deed which is the basis of the
Trustee's title.
14

Although we do not decide the point, we question whether a trustee may seek
recovery of real estate in a turnover proceeding, essentially a judgment quieting
title to the property. Section 542 of the Bankruptcy Code
was never designed to apply to the Trustee's attempt to obtain title to real
property which he alleges is property of the estate. Instead, Sec. 542 was
designed to allow the Trustee to obtain possession of tangible personal property
belonging to the Debtor, but that is in the possession of another.
In re Williams, 91 B.R. 609 (Bankr.M.D.Fla.1988). In addition, when a
bankruptcy court uses turnover proceedings to quiet title to real estate that is
located in another jurisdiction and has no connection to the debtor, title to
which is claimed by a party having no contact with the forum, we believe that
substantial due process concerns are implicated.
Some courts, however, have used turnover proceedings to effect a transfer of
possession of real estate. For example, in In re Southern Metal Prods. Corp., 26
F.Supp. 666 (N.D.Ala.1939), the court, without discussing the point, allowed a
trustee to use a turnover action to oust a receiver from property that he occupied
after a creditor foreclosed on a fraudulent mortgage. See also 2 Collier on
Bankruptcy Sec. 23.10, at 561 & n. 2 (14th ed. 1974) (real estate is subject to
turnover orders).

15

In litigation that is "related to" a title 11 case, the bankruptcy court submits
proposed findings of facts and conclusions of law to the district court, 28
U.S.C. Sec. 157(c)(1) (1988), or, with the consent of the parties, enters
appropriate orders and judgments, id. Sec. 157(c)(2)

16

If the trustee first had proceeded against Mrs. Gallucci rather than taking
Gaudio's deed, the bankruptcy court clearly would not have had jurisdiction to
try the turnover action

17

Although the trustee contends that he approached Gaudio with the good faith
belief that the Rhode Island property had been property of the debtor at the
commencement of the case, there is no evidence in the record that could have
supported such a belief. The title documents to the property, for example, never
reveal that Michael Gallucci, Jr. held an interest in the property at that time-nor is there any testimony to support such a conclusion

The trustee could have advanced only one theory to show that the debtor owned
the property. The debtor's parents, Mrs. Gallucci and Michael Gallucci, Sr.,
transferred the property to Patricia Gallucci, their daughter-in-law, not in fee
simple, but to hold in trust for their son, Michael Gallucci, Jr. Then, Patricia
Gallucci transferred the property to Gaudio, not as a gift to him, but again in
trust for the debtor. Thus, the debtor would have maintained an interest in the
property.
There is, however, no evidence in the record to indicate that the bankruptcy
trustee believed that a trust was intended. At best, he misread the record and
thought that Michael Gallucci, Sr. was the debtor (even traveling on this theory
he could not claim that Michael Gallucci, Sr. still owned the property either at
commencement of the bankruptcy or within the fraudulent or preferential
transfer period) or that Michael Gallucci, Jr. had obtained curtesy rights in the
property through his wife (for a discussion of the debtor's curtesy rights, see
supra note 8); at worst, the trustee sought to coerce someone in the chain of
title to quitclaim the property to him knowing that he could not prove that the
debtor had a legal or equitable interest in the property when bankruptcy
supervened or that the debtor had fraudulently or preferentially transferred it.
18

By complying with the trustee's demands that he quitclaim the property to the
trustee rather than merely, by affidavit, disclaim any interest in the property,
Gaudio risked wrongfully encumbering the title of the property belonging to
another. (Gaudio should have been concerned with this risk. He testified that he
did not know that he appeared in the chain of title of the property and, in fact,
believed that someone else must own it.)

19

Or the court could determine that, although the property now is owned by a
third party, it was preferentially or fraudulently transferred (within the statutory
period). See 11 U.S.C. Secs. 547, 548 (1988)

20

In the instant case, it is not necessary to remand the case to the bankruptcy
court for a determination of whether the property was part of the debtor's estate
at the commencement of bankruptcy since the trustee has conceded that it was
not